Jet fuel value plummets; FAA suspends slot-requirements

New York — Jet fuel differentials on the Gulf and Atlantic coasts plunged to fresh lows Wednesday following news that the US Federal Aviation Administration will suspend minimum slot-use requirements at three major airports.

S&P Global Platts assessed the benchmark Gulf Coast jet fuel differential at NYMEX April ULSD futures minus 20.25 cents/gal, with value shedding 15% on the day to surpass three-year lows. The differential was last lower on December 5, 2016 when the discount was minus 24.50 cents/gal.

Similar losses were seen on the Atlantic Coast, where the New York jet fuel for Buckeye Pipeline differential fell 22% from the prior session to futures minus 15 cents/gal. This marks the lowest level since December 21, 2016 when value was seen at futures minus 15.75 cents/gal.

Both drops followed news that the FAA will suspend its "use-or-lose" provision, requiring airlines to utilize their respective airport slots 80% of the time in order to maintain usage.

According to the FAA, a slot is "an authorization to either take-off or land at a particular airport on a particular day during a specified time period" used to manager air traffic.

The FAA is waiving the requirement until May 31 at John F. Kennedy and LaGuardia airports in New York and Ronald Reagan National Airport in Washington.

"Was wondering when they would [waive] that," commented one trader. "Felt like a no-brainer."

SWAPS SEEN AT SIMILAR LOWS

The USGC and USAC jet swaps markets hit multi-year lows Wednesday, while the differential curve flipped into contango throughout the year. The USGC jet balance-month swap differential reached its lowest level Wednesday since Platts began recording it in 2018, and the front-month swap reached its lowest level since late 2017 and the front-month Buckeye Pipeline swap reached its lowest level since 2016.

On Wednesday, the balance-month March USGC jet swap fell to minus 20 cents/gal, where it traded shortly before the close. The balance-month swap fell sharply throughout the day, trading earlier in the morning as high as minus 17.25 cents/gal. One month ago the first-month April swap, which traded earlier as high as minus 16.50 cents/b, was assessed at minus 17.50 cents/gal, the lowest the first-month swap has been since it reached minus 18 cents/gal in November 2017.

The first-month Buckeye Pipeline swap fell to minus 12.50 cents/gal, the lowest since December 2016.

The structure in the Gulf Coast between the balance-month and the December swap flipped from backward as much as 1 cent/gal last week to a contango this week. On Wednesday, the contango between the balance month swap and December was assessed at 5.50 cents/gal, the steepest contango in that nine-month period since November of 2018, when end-of-year selling tends to pressure Gulf Coast differentials.